Simple Moving Average (SMA)
The Simple Moving Average (SMA) is a technical analysis tool used to identify the direction of a security’s price trend. It is calculated by taking the average of a security’s closing prices over a certain period of time. The SMA is a lagging indicator, meaning it is based on past prices and will not predict future price movements. It is used to smooth out short-term price fluctuations and highlight longer-term trends or cycles.
History of the Simple Moving Average
The Simple Moving Average has been used by traders and investors since the late 19th century. It was first developed by Charles Dow, one of the founders of Dow Jones & Company. Dow used the SMA to identify the direction of the stock market and to identify support and resistance levels. Since then, the SMA has been used by traders and investors to identify trends and to make trading decisions.
Comparison Table
| Indicator | Time Period | Lag |
|---|---|---|
| Simple Moving Average | 10 days | 10 days |
| Exponential Moving Average | 10 days | 2 days |
Summary
The Simple Moving Average is a technical analysis tool used to identify the direction of a security’s price trend. It is calculated by taking the average of a security’s closing prices over a certain period of time. The SMA is a lagging indicator, meaning it is based on past prices and will not predict future price movements. For more information on the Simple Moving Average, traders and investors can visit websites such as Investopedia, The Balance, and StockCharts.com.
See Also
- Exponential Moving Average (EMA)
- Weighted Moving Average (WMA)
- Bollinger Bands
- Relative Strength Index (RSI)
- Stochastic Oscillator
- Moving Average Convergence Divergence (MACD)
- Average Directional Index (ADX)
- On Balance Volume (OBV)
- Price Volume Trend (PVT)
- Commodity Channel Index (CCI)
